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MINING A

GROWING MARKET

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Gregory H. Leisch, CREChief Executive Officer

Chip ClarkePresident, Gulf Coast and Mountain Regions

To our friends, clients and colleagues:

We are pleased to provide you this twelfth annual edition of TrendLines: Trends in Metro Houston Commercial Real Estate. This is a collaborative publication of Transwestern and its research affiliate, Delta Associates. Our purposes are to distill the trends of 2012 and to shed light on pivotal forces and issues that we believe will affect the region’s economy and commercial real estate in 2013 and beyond.

Through the 3rd quarter of 2012, the Metro Houston commercial real estate market’s performance ranked among the best in the nation, a reflection of the strong local economy. Office vacancy, including sublet space, is 10.9% – down from a cyclical high of 13.6% in 2010 and 12.2% a year ago. Office asking rents are rising in many submarkets and have surpassed their previous peak, which occurred in 2007. Meanwhile, the industrial market is experiencing expansive growth, with vacancy at just 4.6%, down from 5.3% a year ago.

Employment gains in Metro Houston have been among the best in the nation in 2012, and as a result, the commercial real estate market likely will continue to improve in 2013. Of note, pricing for office assets continues to rise, topping last year’s record. Pricing likely will rise further in 2013 as market fundamentals continue to improve and interest rates remain low.

We expect to find significant opportunities in our industry in the period ahead, notwithstanding the sluggish pace of the national economic recovery. In 2013, we expect:

These projections are supported by the sturdy performance of the energy and health sectors, as well as by the expansion of the Panama Canal, which is likely to generate growth in Houston’s distribution sector. The pace of regional economic growth may be uneven as the national economy remains volatile, but Houston is likely to endure as a national leader in job creation during 2013.

supply is expanding, it remains limited enough to encourage rent growth.

employment growth; demand for high-quality assets will remain robust in 2013.

for existing assets continues to rise and vacancy remains low, we expect additional spec development to ensue.

We hope the following information provides insight into our collective opportunities. All the professionals at Transwestern and Delta Associates look forward to helping you interpret the material in this report, and to being your service partner in the successes we are confident you will achieve in the period ahead. We offer you our best wishes for a successful 2013.

November 2012FOREWORD


2TRENDLINES® HOUSTON 2012 |

Locke Lord Bissell & Liddell LLP

Locke Lord Bissell & Liddell LLP is a full-service, national law firm with offices in Atlanta, Austin, Chicago, Dallas, Hong Kong, Houston, London, Los Angeles, New Orleans, New York, Sacramento, San Francisco and Washington, D.C. Our team of nearly 650 attorneys has earned a solid national reputation in complex litigation, regulatory and transactional work. We serve our clients’ interests first, and these clients range from Fortune 500 and middle market public and private companies to start-ups and emerging businesses.

Locke Lord’s team builds collaborative relationships and crafts creative solutions to solve problems – all designed and executed with long-term strategic goals in mind. Among Locke Lord’s many strong practice areas are appellate, aviation, bankruptcy/restructuring, business litigation, class action litigation, corporate, employee benefits, energy, environmental, financial services, health care, insur-ance and reinsurance, intellectual property, international, labor and employment, litigation, mergers and acquisitions, private equity, public law, real estate, regulatory, REIT, tax, technology, and white collar criminal defense and internal investigations. Chicago Title Insurance Company — Commercial

Chicago Title offers customers the most comprehensive and accurate real estate related services in the nation. You can rely on Chicago Title, with its rich history of over 160 years, to provide assurance and security for all your real estate transactions and title insurance needs. In Houston, please contact Jimmy Erwin, Reno Hartfiel or Karen Highfield for property-related transactions in Texas and the rest of the United States.

Harvey Builders Since the formation of D.E. Harvey Builders 50 years ago, the company has rapidly grown to be a recognized leader in the Houston building industry. Currently, the company maintains offices in Houston, Austin, San Antonio, and Washington, D.C. All facets of the commercial construction markets are being served. Our people and the projects they manage represent a culture, philosophy and history based on community service. From the very beginning, we have worked hard to become an integral part of the communi-ties we have helped to build. Our philosophy is based on three words: Innovation, Quality, Integrity. Harvey takes pride in taking great care of their clients by treating them as partners. With a solid foundation of past accomplishments we continually strive to build trusting relationships with our clients and for excellence in our performance. Our work is visible evidence of our concern for the environment, for education, for healthcare, and for the economy. At Harvey, we care enough to exceed the needs of our clients and society in everything we do.

J.P. Morgan

J.P. Morgan is a leader in financial services, offering solutions to clients in more than 100 countries with one of the most comprehen-sive global product platforms available. We have been helping our clients to do business and manage their wealth for more than 200 years. Our business has been built upon our core principle of putting our clients’ interests first. J.P. Morgan is part of JP Morgan Chase & Co. (NYSE: JPM), a global financial services firm with assets of $2.3 trillion.

Kirksey Specializing in sustainable architecture, interior design and master planning, Kirksey designs high-performance, healthy buildings for all of our clients. Our firm is organized into focused practice groups — Commercial, Community/Religious, Education, Healthcare, Hospitality, Interior Architecture, Residential, Retail, and Science & Technology — each supported by departments of Design, EcoSer-vices, Information Technology and Marketing. To ensure healthy environments for all of our projects, we developed a basicGREEN™ program that prescribes sustainable design measures to be implemented on EVERY project, regardless of LEED Certification and at no added cost. With more than 24 million square feet of LEED projects certified or underway, Kirksey has achieved major milestones within our community, including the 1st LEED certified building in Houston (Silver, New Construction), the 1st LEED CI in Houston (Silver, Commercial Interiors), the 1st LEED EB in Texas (Existing Building, our own corporate headquarters), and the 1st LEED CS (Core and Shell), which is also the 1st Gold certified building, in Houston.

TRANSWESTERN WOULD LIKE TO THANK OUR 2012 SPONSORS



Acknowledgments:The editor, Gregory H. Leisch, CRE, wishes to acknowledge and thank this project’s research team at Delta Associates: Alexander (Sandy) Paul, CRE, National Research Director; David Parham, Senior Vice President; Steven Reilly, Senior Associate; and Ricky Bierbower, Associate. Thanks also to the creative layout team at Transwestern, headed by Shannon Bedinger and Joseph Cowan. Our gratitude also goes to Cyndi McNeill for her help with this project.

Representations: Although the information contained herein is based on sources that Delta Associates (DA) and Transwestern (TW) believe to be reliable, DA and TW make no representation or warranty that such information is accurate or complete. All prices, yields, analyses, computations, and opinions expressed are subject to change without notice. Under no circumstances should any such information be considered representations or warranties of DA or TW of any kind. Any such information may be based on assumptions that may or may not be accurate, and any such assumption may differ from actual results. This report should not be considered investment advice.

T A B L E O F C O N T E N T S

SECTION ONE SUMMARY 05

SECTION TWO THE NATIONAL ECONOMY 09 SECTION THREE THE HOUSTON METRO ECONOMY 18 SECTION FOUR THE HOUSTON METRO OFFICE MARKET 23

SECTION FIVE THE HOUSTON METRO INDUSTRIAL MARKET 32 SECTION SIX OFFICE AND INDUSTRIAL INVESTMENT TRENDS 39 SECTION SEVEN THE HOUSTON METRO MULTIFAMILY MARKET 46 SECTION EIGHT THE HOUSTON METRO RETAIL MARKET 49

Special Thank You To Our Keynote Speaker:John Robert BoltonJohn R. Bolton was appointed as United States Permanent Representative to the United Nations on August 1, 2005 and served until his resignation in December 2006. Prior to his appointment, Bolton served as Under Secretary of State for Arms Control and International Security from May 2001 to May 2005.

SECTION ONE SUMMARY 05

SECTION TWO THE NATIONAL ECONOMYAA Y 09

SECTION THREE THE HOUSTON METRO ECONOMY Y 18

SECTION FOUR THE HOUSTON METRO OFFICE MARKET 23

SECTION FIVE THE HOUSTON METRO INDUSTRIAL MARKET 32

SECTION SIX OFFICE AND INDUSTRIAL INVESTMENT TRENDS 39

SECTION SEVEN THE HOUSTON METRO MULTIFAMILY MARKET 46

SECTION EIGHT THE HOUSTON METRO RETAIL MARKET 49



SUMMARY

SECTION ONE

5TRENDLINES® HOUSTON 2012 |Return to Table of Contents |


HOUSTON’S ECONOMIC GROWTHREMAINS STRONG

Economic growth has strengthened in the Houston metro area dur-

August is the fourth-most in the nation, trailing only the Los Angeles Basin, New York, and San Francisco. Houston’s employment rose by 3.5% in that period, compared to national growth of 1.4%. The En-ergy and Trade/Transportation sectors are fueling growth, and most of Houston’s core industries are continuing to improve:

Energy: Lower oil and natural gas prices in the early summer eased investment in the industry, but the rise of hydraulic fracturing kept the sector strong. Energy continues to support growth region-wide, and rebounding oil prices will further this trend.

Professional Services: 10,200 jobs were added over the 12 months ending August 2012.

Construction: Projects are progressing at a consistent pace with access to financing. Jobs are being added in this industry.

Manufacturing: Employment (on a trailing 12-month basis) has risen every month since October 2010.

Trade: Air freight rose 5.7% in 2011, a new annual record, and 2012 remains on track to finish as the second-best year ever. Investment is rampant with Panama Canal expansion and the growth of Latin American trade spurred by the energy sector.

Metro Houston’s economy is expected to experience healthy growth over the next several years, although it could be at risk due to in-ternational instability. European turmoil and a slowdown in China’s economic expansion may diminish global growth. The promise of the Panama Canal expansion in 2015 will increase investment in the Port of Houston, and if the airports succeed in their bid for Latin American routes, activity could increase dramatically. Strength in the Energy, Transportation, and Professional Services sectors, under-pinned by a recovering consumer sector, will fuel expansion locally over the next several years. As a result, we expect Houston’s annual job growth to average close to 90,000 per annum through the end of 2014, comparable to the growth during the 2005-07 expansion period. Houston’s employment growth should be among the na-tion’s strongest.

NATIONAL ECONOMY: UNCERTAINTY PREVAILS, DAMPENING RECOVERY

Uncertainty remains a persistent drag on overall U.S. economic growth, which has led to below average job gains and consumer spending. This has created a lack of momentum needed to drive the economy into a more robust recovery. In comparison to the past four recessions, the current recovery remains sub-par. Consumers and businesses have had to adjust to a new economic reality of slower growth, which has been plagued recently by potential budget cuts and rising taxes at the start of 2013.

If automatic budget cuts, known as “sequestration,” are avoided the national economy likely will continue to grow, albeit at a slow pace. In 2013, 2.0 million jobs would be added to economy, which would

We believe the Congress will do what is right for the economy and ultimately avoid the “fiscal cliff.” So, we believe the national economy will continue to experience slow recovery during the balance of 2012 and into 2013 and beyond.

We believe the economic outlook is as follows:

to-December calculation) and slightly more in 2013.



HOUSTON METRO OFFICE MARKET: VIGOROUS GROWTH IN 2012

The Houston metro office market has experienced continued growth in 2012, as the local economy continues to expand at a steady clip. Professional/Business Services and Energy-related firms have sup-ported the leasing activity, vacancy has continued to decline, and rents are increasing.

Net absorption totaled 2.9 million SF in the first three quarters of

all of 2011. The Class A market accounted for a majority of that total, absorbing 2.2 million SF, or 77% of activity in the Houston market.

The overall office vacancy rate (including sublet space) in the Hous-ton metro area fell to 10.9% as of September, down from 12.2% a year ago. Direct vacancy is currently 10.6%, a decrease from 11.7% one year ago.

Asking rents for all classes of office space have risen approximately 2.4% in metro Houston during the first three quarters of 2012, af-

while Class B asking rents have increased 1.7%. Asking rents have surpassed their previous peak, which occurred in 2007. Rents have pulled back slightly recently as growth in the Energy sector deceler-ated over the past few months, but market fundamentals suggest further asking rent growth in the period ahead. Additionally, effec-tive rents are rising in certain submarkets as concessions decline in response to steady demand.

The Houston metro office market will likely remain strong in the peri-od ahead, provided that the regional economy continues expanding at a healthy pace and is not disrupted by global forces. As businesses increase leasing activity, vacancy will continue declining, likely drop-ping below 10% over the next two years. As a result, rents will likely gain significant upward momentum in 2012-13. Office market con-ditions will likely turn in the landlord’s favor through the rest of 2012 and into 2013, as vacancy declines and the pipeline of new supply (presently at 1.7% of the standing inventory including planned space likely to deliver within two years) remains limited.

HOUSTON METRO INDUSTRIAL MARKETFUNDAMENTALS REMAIN STURDY,SHOULD GAIN FURTHER MOMENTUM

The fundamentals of the Houston industrial market have continued to improve in 2012, with vacancy remaining among the lowest in the nation and continuing to decline. While absorption has deceler-ated some compared to the levels seen in 2011, performance is still strong relative to peer cities and is poised for further improvement with the expansion of the Panama Canal now underway and set to be completed in 2015. By 2013, the Port of Houston will be equipped to handle a larger volume of shipments coming from the Pacific, which should help to bolster the broader industrial market.

Net absorption of industrial space in the Houston metro totaled 3.3 million SF through the first three quarters of 2012, compared to a total of 6.3 million SF in 2011. Businesses are continuing to expand as the local economy strengthens and consumer spending gradually increases.

The overall Houston metro area industrial vacancy rate declined to 4.6% in September 2012 from 5.3% a year earlier. The direct industri-al vacancy rate, 4.5% in September, is down from 5.2% a year earlier.

Industrial asking rents are up modestly in 2012. The September 2012 average asking rent for all types of industrial space was $5.32/SF, triple net.

The Houston metro industrial market will likely experience continued growth in the near term. However, global economic uncertainty re-mains high and could potentially check domestic economic growth. If growth accelerates, vacancy will continue to decline into 2013, as demand outpaces new supply. If construction remains minimal, in-dustrial rents will rise, with concessions burning off quickly, as market conditions turn further in the landlord’s favor. Groundbreakings are increasing, however, in response to the market’s very low vacancy rate and the positive outlook of the trade/transportation sector.



Net absorption for all classes of apartments remained strong in the Houston metro over the 12 months ending June 2012, surpass-ing the pace of absorption in 2011. Absorption was approximately 17,275 units over the 12 months ending in June 2012, compared to 15,591 units during 2011.

Vacancyof 2011 and 11.0% at year-end 2010. The vacancy rate for all classes of Houston metro apartments has continued to decline following its spike in 2009 and is now at the lowest level since 2007.

The average rental rateat the end of September, up 5.1% over the past 12 months. Rents will likely increase modestly through the balance of 2012 and into 2013 as job creation continues and economic growth strengthens.

HOUSTON METRO RETAIL SECTOR EXPANDING

Metro Houston’s retail market experienced steady improvement in 2012, as the economy strengthened and job growth remained strong locally. This sector’s growth is supported by one of the nation’s best regional economies and its solid employment gains, reinforced by hiring in the core industries.

Houston’s retail vacancy rate, at 11.2% in the 2nd quarter of 2012, is down from 12.4% in the 2nd quarter of 2011. We expect that vacancy will remain steady or decline modestly for the remainder of 2012, as Houston’s consumer sector remains strong and retailers open more stores.

Retail rentssame as in the quarter prior. Rents declined over the past year but likely will experience modest growth during the balance of 2012 and into 2013, as consumer spending gradually accelerates and market conditions continue to strengthen. The recent trends in vacancy have set the stage for rent growth.

The Houston retail market will likely undergo a sustained expansion during the remainder of 2012 and into 2013, as local job growth con-tinues to remain strong and the consumer sector strengthens. As the regional economy grows, consumers will spend more, and a growth cycle in the retail market will likely occur over the next several years, making investment very attractive.

We expect the Houston retail market to outperform most other metro markets in the country, as the Houston metro area is a national leader in job creation and population growth. New jobs, in concert with an expanding population, will drive retail spending in the period ahead.

INVESTMENT SALES

Investment sales of office assets have plateaued near 2011 levels af-ter bouncing back in the wake of the recession. Annualized national office volume for 2012 totals $62.9 billion, compared to $64.7 bil-

the volume seen last year. While job growth and improving market fundamentals hold promise for investors, continued unease over the state of the national economy is preventing a faster turnaround with more robust volume.

In both the long term and short term, real estate investment has out-performed stocks and bonds. The 12 months ending June 2012 saw

increase in the NCREIF Property Index.

Recent activity in Houston’s office investment market was highlight-ed by the sale of Shell Plaza Towers to the Duncan Family, which closed in August for $550 million,or $307/SF. The 3rd quarter alone accounted for 56% of the $1.6 billion in total sales in 2012. Sales volume totaled $2.9 billion in all of 2011, which could be surpassed in 2012 should high profile buildings on the market like Williams Tower in the Galleria submarket and the Kinder Morgan Tower in the CBD submarket for up to $475 million and $400 million, respectively, eventually transact. The average cap rate on a rolling three-month basis for core Houston

-ered a wide range this year depending on the location and charac-teristics of the properties being traded. YTD, the weighted average cap rate in Houston is 7.2%. Trophy properties have recently traded at cap rates below 7%. We expect cap rates to edge down during the balance of 2012 as market fundamentals suggest increasing investor interest in Houston’s office assets.

Despite decelerating some from 2011 numbers, national industrial investment sales remain well above recessionary levels seen in

Cap rates for recorded sales of Houston industrial product in 2012

large spread between Class A and Class B product.

MULTIFAMILY: ROBUST PERFORMANCE

The Houston metro multifamily market continues to expand due to large population increases and one of the highest job growth rates in the country. This year has seen market fundamentals strengthen, with absorption and rents up and vacancy down.



THE

NATIONAL

ECONOMY

SECTION TWO



Given the enormous impact on the national economy, we do not expect Congress to allow sequestration and tax increases to take hold at the start of 2013. Congress could pass a bill to delay the start date after 2013, which would allow time to devise an alterna-tive plan to the scheduled cuts. Or, Congress, after the November election, could pass a bill that alters the current plan, allowing the cuts to start in 2013, but with less immediate impact.

Overall, current economic conditions point to a sluggish economy – not a stalled economy. Sluggish economic growth is likely the new normal for periods of economic “expansion.” So, business success could be measured by how commerce adapts to this new slower-growth economic environment, at least for the intermediate term.

UNCERTAINTY PREVAILS, DAMPENING RECOVERY

Uncertainty remains a persistent drag on overall U.S. economic growth, which has led to below average job gains and consumer spending. This has created a lack of momentum needed to drive the economy into a more robust recovery. In comparison to the past four recessions, the current recovery remains sub-par. Consumers and businesses have had to adjust to a new economic reality of slower growth, which has been plagued recently by potential budget cuts and rising taxes at the start of 2013.

Congress has yet to alter the tax hikes and Federal spending cuts set to take effect in January 2013. If this plan is not altered, the na-tional economy is headed to what has now been coined a “fiscal cliff,” which may trigger another recession. In the meantime, busi-nesses and consumers remain cautious about spending, which has created lackluster economic growth. If the scheduled tax increases and spending cuts go into effect at the start of 2013, the projected Federal deficit will be reduced. However, this improvement comes at a cost to the already sluggish economy. The Congressional Budget Office projects that if the plan goes into effect as scheduled, the GDP will decline by 2.9% during the first half of 2013 and 0.5% for the entire year. In addition, the unemployment rate would rise to 9.1% during the 2nd half of 2013.

If automatic budget cuts, known as “sequestration,” are avoided the national economy likely would continue to grow, albeit at a slow pace. GDP would rise 1.7% during 2013 and 2.0 million jobs would be added to economy, which would leave the unemployment rate

ECONOMIC OUTLOOKUnited States

GDP 2013 2022

With Sequestration -0.5% 2.3%

Without Sequestration 1.7% 2.1%

UNEMPLOYMENT RATE

With Sequestration 9.1% 5.3%

Without Sequestration 5.3%Source: Congressional Budget Office, Delta Associates; October 2012.



PAYROLL JOBS

during the 12 months ending September 2012. The private sector added approximately 1.9 million jobs during that period and the public sector shed 51,000. Month-to-month gains have been slow to progress, as 114,000 jobs were added to the economy during the month of September 2012. Job gains have been disappoint-ing compared to past economic recoveries. Approximately 125,000 jobs must be created per month just to keep the unemployment rate steady. Although the economy continues to move forward, it does so at a sub-par pace. This sub-par pace will encourage businesses and consumers to alter spending patterns to adjust to this limited growth. We expect muted job growth in the near-term, with approxi-mately 2.0 million jobs added to the national economy during 2012 and perhaps slightly more in 2013.

Companies remain cautious in hiring, taking a wait-and-see ap-proach. And many companies do not need to hire back laid-off em-ployees, as productivity gains have eliminated some jobs.

We expect more jobs to be trimmed from the public sector during the balance of 2012, as governments cut their workforces to make up for budget shortfalls. However, the national economy will contin-ue to see net job creation as these losses will be offset by continued growth in the private sector. Although we expect the private sector to grow for all of 2012, the pace of growth will be muted. We expect the pace to improve somewhat in 2013.

During the 12 months ending September 2012, the top three sectors in job gains were Professional/Business Services, Education/Health, and Transportation/Utilities – adding a total of 1.3 million new jobs. Government and the Information sector shed the most workers over the past year, cutting 62,000 net positions in total. The Government sector (both Federal and State/Local) is reducing its workforce as budget austerity measures are put in place.



The Bureau of Labor Statistics projects the economy will add 19.7 million non-farm payroll jobs from 2010 through 2020, for an aver-age annual growth rate of 1.4%. This growth rate compares to the 20-year average of 1.0%. Education/Health is projected to be the lead-er in job growth from 2010 through 2020, adding 6.5 million jobs.

Although the Construction sector ranks third for the number of jobs

and will remain below its pre-recession employment level in 2020.

Initial unemployment claims have bounced around the 15-year aver-age since the start of 2012. Initial claims declined to 364,000 based on a 4-week moving average as of the start of October. This com-

at the current level during the remainder of 2012.

2012 from 9.0% one year earlier. Although this decline provides op-timism for the economy, it should be observed with caution, as the decline in 2012 has been due in part to people giving up looking for work and dropping out of the workforce. However, it also has been bolstered recently by upward revisions of data for recent months as new survey data has become available. We anticipate the unemploy-

We anticipate the unemployment rate will not edge down materially in the short run, as formerly discouraged job applicants start the ap-plication process again. This could push the rate higher in late 2012 and into 2013, or at least keep it from declining materially.

As of August 2012, for every U.S. job opening there are 3.5 potential applicants. This is below the peak of 6.9 applicants for every job in July 2009, but above the 10-year average of 3.1.

2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011



Drilling down to job sectors, there are too many potential applicants for too few jobs within each sector. This gap is most apparent in the construction sector where for every job opening there are 16 po-tential applicants. Although BLS projects the Construction sector will

severe job loss during the downturn and will remain below its pre-recession employment level in 2020. This loss will force many unem-ployed construction workers to revamp their skill set in order to be hirable by another sector. The Education and Health Services sector has just two applicants per job opening.

GROSS DOMESTIC PRODUCT (GDP) AND CONSUMPTION

GDP increased 1.3% (annualized rate) during the 2nd quarter of 2012, compared to rising 2.0% during the 1st quarter. GDP increased 1.7% during 2011, compared to the 20-year annual average of 2.5%. The rise in GDP during the 2nd quarter is the 12th consecutive quar-ter that the economy has expanded. Although the economy contin-ues to make gains, the growth rate remains lackluster. We anticipate GDP growth to complete 2012 at around 2.1%, which is above the rise achieved during 2011, but below the pace needed to signifi-cantly lower the unemployment rate.

GDP growth during the 2nd quarter was due to personal expendi-tures and private domestic investment. However, the Government and exports continue to pull back, acting as a drag to overall GDP growth. Although growth has benefited from gains in consumer spending and equipment investment, these fundamentals have im-proved at a pace below the average of prior recoveries.

Households are currently under stress, as the unemployment rate remains elevated, prices are on the rise, and home values remain depressed, despite a modest rebound. According to the household stress index, which accounts for the rate of inflation, unemployment, and real estate values, households experienced a rise in stress during 2011.



We expect the consumer to remain under elevated stress during the balance of 2012. Stress should decline to the 10-year average during 2013, as conditions improve, and fall below this average during 2014.

As household stress rises, consumers become less confident about their financial stability. This uncertainty causes consumers to tighten spending. Although spending has picked up pace recently, it re-mains sub-par. Compared to past recoveries, consumer spending will not be a strong economic driver during this recovery period. With consumer spending responsible for 70% of U.S. GDP, growth in consumer spending is essential for a more robust domestic re-covery.

Although consumer spending is helping to boost GDP, spending has been restrained due to below average consumer confidence. Even though confidence has edged up to 74.3 as of August 2012 in

-

spending, as consumer expenditures rose 1.7% on a year-over-year basis during the 2nd quarter of 2012, excluding auto and gas pur-chases. This rate is below the 15-year average of 2.9%.

Consumer spending remains below average due in part to the de-cline in net worth during the recession – consumers are still digging themselves out of this hole. Households lost over $17 trillion in per-sonal wealth from the 4th quarter of 2007 to the 1st quarter of 2009. Although households have regained some of the assets lost, gains have been uneven and it will take several more years to recoup the

1st quarter of 2012, but declined by $0.3 trillion in the 2nd quarter. Despite the rise in net worth during the first three months of 2012, Americans continue to struggle to recover what was lost during the downturn, as median net worth dropped 40%, from $126,400 in 2007 to $77,300 in 2010, according to the Federal Reserve. This decline in net worth puts downward pressure on future spending, as Americans will remain cautious until a broader recovery is achieved.

U.S. companies are sitting on piles of cash, waiting for clear signals that the economy is on a consistent recovery path. Corporate profits rose 6.1% during the 12 months ending June 2012; U.S. companies earned $1.92 trillion in profits during that period, just below the re-cord total for all of 2011. Companies have the resources to hire, but remain wary about future demand for their products and services. In addition, with sluggish consumer demand, companies have enough labor to keep pace.



HOUSING MARKET

Home prices in 20 major metro areas increased an average of 1.1% during the 12 months ending July 2012, the most recent data available, according to S&P/Case-Shiller. The housing market has struggled to recover, as unemployment remains high, foreclosures dampen gains, and lending standards remain tightened. We expect home prices to stabilize during the balance of 2012, although any year-over-year gains will be muted by foreclosures that continue to plague the market.

August 2012, compared to 4.3 million during 2011. However, the number of sales is well below the level achieved at the peak of the market. The U.S. housing sales price averaged $235,300 during Au-gust 2012, up 7.2% from one year earlier, according to the National Association of Realtors. Prices have risen on existing home sales, as

to 6.1 months at August 2012. This low level is more a reflection of homeowners not putting their house on the market given the value of their home has not increased enough to justify the sale. In many cases, homeowners have negative equity, meaning their home is worth less than the remaining balance on the mortgage. In the current economic recovery, the housing market is experiencing a long-term correction, which continues to hamper broader economic conditions.

FEDERAL INTERVENTION & INFLATION

The Federal government continues to implement programs to sus-tain the national economy, vowing to do what it takes to keep the economy on track.

The Federal Reserve has kept the Federal Funds Rate at its current low level, as some business sectors continue to shed jobs. Given the economy continues to grow at a slow pace, the Fed plans to keep short-term rates at its current range of 0% to 0.25% through mid-2015. Between little pressure in the economy and the Fed’s commit-ment, we see a low probability of a meaningful increase in long-term interest rates over the next few years. But that could change if our for-eign bond holders trade out of our sovereign debt at an unexpected rate – and that could be related to the coming debt ceiling debate and probable display again of a dysfunctional Federal government.

Regarding inflation, prices increased 2.0% during the 12 months ending September 2012, below the levels seen in 2011. The main driver of the lower rate is a notable decline in gas prices from April to June. Consumer food prices were also tepid. However, we expect drought conditions to push food prices higher in the short term. Overall, we expect inflation to be constrained in the near-term, due to elevated unemployment and limited income growth, which will continue to cause lackluster consumer spending. Given this, cou-pled with appropriate monetary measures, inflation should remain controlled around 2.0% during the remainder of 2012.



TRENDLINES® HOUSTON 2012

FEDERAL BUDGET AND DEBT

The Congressional Budget Office (CBO) anticipates the U.S. budget deficit for 2012 will total $1.1 trillion, compared to $1.3 trillion in 2011. As seen last year with the debt ceiling debate and the Congressional super committee, gaining Federal budget balance has generated con-cern by both political parties, though so far a lack of broadly acceptable solutions. A split Congress and the election of many new representa-tives in 2010 who campaigned on the promise to cut spending sparked heated debate on how to reduce the deficit. The debate resulted in spending reductions in the 2012 budget and implications for the pro-posed 2013 budget, which has yet to be approved.

Automatic across-the-board cuts, totaling $1.2 trillion over ten years, called “sequestration,” are slated to go into effect at the start of 2013. This dagger has been swaying over the heads of businesses and consumers since November 2011, hampering economic growth due to uncertainty. Half of the automatic cuts will come from the Defense budget and half from the Domestic budget.

According to Dr. Stephen Fuller of the Center for Regional Analysis at George Mason University, if these cuts are allowed to take place starting in 2013, the national GDP will take a $215 billion hit and 2.15 million jobs could be lost.

This level of job loss would act as a drag on the economy, keep-ing the unemployment rate elevated through 2015, suppressing confidence and consumer and business spending. Much of the hit will come in 2013, as the greatest reduction in Federal spending is scheduled to take hold then. The residual impact would mean re-duced demand for office space and lowered retail spending.

ECONOMIC OUTLOOKWe believe the Congress will do what is right for the economy and ultimately avoid the “fiscal cliff.” So, we believe the national econo-my will continue to experience slow recovery during the balance of 2012 and into 2013 and beyond.

We believe the economic outlook is as follows:

to-December calculation) and slightly more in 2013.

NATIONAL PAYROLLJOB GROWTH SUMMARY

ending September 2012. This represents a rise of 1.4%. This com-pares to the 25-year annual average of 1.3 million jobs at a 1.1% average growth rate.



U.S. PAYROLL JOB GROWTH

YEAR JOB CHANGE %CHANGE

2012* 1.4%

2011 1,503,000 1.2%

2010 -931,000 -0.7%

2009 -4.4%

-0.6%

2007 1,504,000 1.1%

2006 2,397,000

2005 2,275,000 1.7%

2004 1,423,000 1.1%

2003 -344,000 -0.3%

2002 -1.1%

*Change for 12 months ending in September 2012; others are comparisons of annual averages. Note that BLS has rebenchmarked figures since their initial publication; the figures presented above are the most recent estimates.

12-MONTH PAYROLL EMPLOYMENT CHANGE THROUGH AUGUST 2012

JOB CHANGE JOB CHANGE METRO AREA # % METRO AREA # %LA Basin Oklahoma City 20,200 3.9%

Los Angeles/Long Beach/Glendale 74,000 2.0% Portland (OR) 20,100 2.0%

Orange County (Santa Ana/Anaheim/Irvine) 29,000 2.1% Philadelphia 0.7%

Riverside/San Bernardino/Ontario 25,400 2.3% San Antonio 2.3%

Subtotal LA Basin 2.1% Minneapolis-St. Paul 1.1%

New York 117,900 1.4% Sacramento 2.3%

San Francisco Bay Area Tampa-St. Pete 15,700 1.4%

San Jose/Sunnyvale/Santa Clara 29,600 3.4% Indianapolis 15,100 1.7%

San Francisco/San Mateo/Redwood City 59,400 3.2% Salt Lake City 14,200 2.2%

Oakland/Fremont/Hayward 17,600 1.9% Pittsburgh 13,700 1.1%

Subtotal Bay Area 106,600 2.9% Charlotte 1.4%

Houston 89,500 3.5% Kansas City 1.1%

Dallas/Ft. Worth 61,100 2.1% Memphis 7,100 1.2%

Boston (Metropolitan NECTA) 52,100 2.1% Cleveland 7,000 0.7%

Phoenix 47,200 Detroit (Detroit/Warren/Livonia) 6,300 0.9%

Seattle 2.5% Baltimore 5,900 0.5%

Denver-Boulder 40,000 2.9% Jacksonville 5,600 0.9%

Chicago 0.9% Las Vegas 5,300 0.6%

Washington, DC 1.3% South Florida

Atlanta 29,400 1.3% Miami/Kendall 0.6%

San Diego 2.3% Fort Lauderdale 1,700 0.2%

Cincinnati West Palm Beach/Boca Raton (2,600) -0.5%

Orlando 25,900 2.6% Subtotal South Florida 4,900 0.2%

Austin 24,700 3.1% St. Louis 2,700 0.2%

Raleigh-Durham 22,900 2.9% Nashville 1,000 0.1%

Columbus (OH) 22,200 2.4% New Orleans (2,200) -0.4%Source: Bureau of Labor Statistics, Delta Associates; October 2012.



HOUSTON METRO ECONOMY

SECTION THREE

THE



LOCAL ECONOMIC GROWTH REMAINS STRONG

Economic growth has strengthened in the Houston metro area dur-

August is the fourth-most in the nation, trailing only the Los Angeles Basin, New York, and San Francisco. Houston’s employment rose by 3.5% in that period, compared to national growth of 1.4%. The En-ergy and Trade/Transportation sectors are fueling growth, and most of Houston’s core industries are continuing to improve.

The Houston area unemployment rate dropped to 7.0% in August -

2012, down from 9.1% one year prior.

Metro Houston’s core industries continue to strengthen:

Energy: Lower oil and natural gas prices in the early summer eased investment in the industry, but the rise of hydraulic fracturing kept the sector strong. Energy continues to support growth region-wide, and rebounding oil prices will further this trend. It remains to be seen what effect the instability in the Middle East and the national election will have on this sector, as deep sea drilling in the Gulf of Mexico has slowed, and the Key stone XL pipeline project remains without approval.

Professional Services: 10,200 jobs were added over the 12 months ending August 2012.

Construction: Projects are progressing at a consistent pace with access to financing. Jobs are being added in this industry.

Manufacturing: Employment (on a trailing 12-month basis) has risen every month since October 2010.

Trade: Air freight rose 5.7% in 2011, a new annual record, and 2012 remains on track to finish as the second-best year ever. Investment is rampant with Panama Canal expansion and the growth of Latin American trade spurred by the energy sector.



Employment in Houston’s Mining sector increased by 6,700 jobs, or 7.5%, in the 12-month period ending in August 2012. In addition,

falling to $77 per barrel in June, crude oil prices rebounded to $92 per barrel in October. This is still below the $105 per barrel seen in March, slowing the heavy investment witnessed in the first quarter of 2012 when prices were stronger, but the rebound promises to strengthen the industry’s confidence. BP is continuing its plan to sell

actively seeking buyers for its Texas City refinery.

The Construction sector added 6,900 jobs during the 12 months ending August 2012 – a 3.9% increase. As Houston’s economy gains strength, commercial and residential construction are increasing. GID Partners broke ground on the Sovereign Apartments, the first building of the 24-acre Regent Square mixed-use development, lo-cated off of Allen Parkway in the Midtown submarket. Hines Global REIT began construction on Waterwall Place, a seven-story, 322-unit multifamily property located in Uptown overlooking the Gerald D. Hines Waterwall Park.

Houston’s Manufacturing sector continues to expand. The Houston Purchasing Managers Index, a short-term leading indicator of pro-duction, measured 60.3 in August 2012 and has been in expansion every month since October 2009. (A score above 50 indicates ex-pansion.) Manufacturing employment growth slowed slightly, add-ing 5,700 jobs over the 12 months ending in August 2012 – a 2.5% increase. This was the twenty-third consecutive month of positive 12-month job growth, after 19 straight months of losses from March 2009 through September 2010. Petrochemical manufacturing con-tinues to be a source of strength, with eight new plants scheduled in the coming years, including two Chevron Phillips facilities costing over $5 billion dollars that will come online in 2017.



The Education and Health Services sector continues to grow, adding 14,900 jobs in the 12 months ending August 2012 – a 4.6% increase. Kelsey-Seybold Clinic is building a 36,400 SF new clinic which will double its existing space in Pasadena. Contracted to Gamma Construction Co., it is scheduled to be completed by spring 2013. The growing multispecialty clinic company also announced it will open a new clinic in Meyerland Plaza. The 72,000 SF facility will include 45,000 SF of clinic space and is also being constructed by Gamma Construction Co.

Trade/Transportation activity is growing stronger in Houston. Hous-ton’s airports handled 5.7% more air freight in 2011 than in 2010, and freight volume in 2012 is on track to post its second-strongest year on record. Meanwhile, 21,300 jobs were added in this sector during the 12 months ending in August 2012, a 4.0% increase and the largest since December 2007. The Port of Houston continues to grow, as the Panama Canal expansion is set to open in 2015. By 2013, the Port will be able to accommodate larger ships that require a deeper channel and larger cranes to unload. Further, the Port Au-thority declared in August that 2nd quarter revenues increased by 5% compared to the original forecast. It has been reported that a worker shortage still exists at the Port, an indication that the strong job growth will likely continue.

In Housing, the Houston Association of Realtors reported a 20.5% increase in single-family home sales volume in August 2012, com-pared to August 2011. This was the fifteenth consecutive month in which sales increased. The average single-family home sale price was $224,464 in August 2012, which is 4.0% higher than the aver-age price for August 2011. The median price was $165,000 in Au-

at the end of August 2012 fell 16.9% from August 2011, indicating there is more demand and less inventory available.



THE HOUSTON METRO AREA ECONOMIC OUTLOOK

Metro Houston’s economy is expected to experience healthy growth over the next several years, although it could be at risk due to in-ternational instability. European turmoil and a slowdown in China’s economic expansion may diminish global growth. The promise of the Panama Canal expansion in 2015 will increase investment in the Port of Houston, and if the airports succeed in their bid for Latin American routes, activity could increase dramatically. Strength in the Energy, Transportation, and Professional Services sectors, under-pinned by a recovering consumer sector, will fuel expansion locally over the next several years. As a result, we expect Houston’s annual job growth to average close to 90,000 per annum through the end of 2014, comparable to the growth during the 2005-07 expansion period. Houston’s employment growth should be among the na-tion’s strongest.



HOUSTON METRO OFFICE MARKET

SECTION FOUR

THE



Net Absorption (SF) in Selected Submarkets: 2011 YTD 2012

VIGOROUS GROWTH IN 2012

The Houston metro office market has experienced continued growth in 2012, as the local economy continues to expand at a steady clip. Professional/Business Services and Energy-related firms have sup-ported the leasing activity, vacancy has continued to decline, and rents are increasing.

CLASS A DEMAND DOMINATES

Net absorption totaled 2.9 million SF in the first three quarters of

all of 2011. The Class A market accounted for a majority of that total, absorbing 2.2 million SF, or 77% of activity in the Houston market.

Net absorption by class (SF): 2011 YTD 2012

Available sublease space in the Houston metro currently stands

Notable 2012 leases include:

FM 1960/Hwy 249 submarket.

Street in the CBD.

Westchase submarket.

in the Galleria submarket.

Enclave Parkway in the Katy Freeway/Energy Corridor submarket.

Parkway in the Katy Fwy/Energy Corridor submarket.

the CBD.

HOW THE MULTI-TENANT MARKET COMPARESTO OUR MARKET COVERAGE

Vacancy and absorption in the Houston metro area often are re-ported by brokerage firms on multi-tenant buildings only. We include owner-occupied and single-tenant buildings as well, on the basis of immediate availability, to capture more market activity. We exclude government-owned space. As a point of comparison, below is data for the Houston multi-tenant office market at Q3 2012: Inventory: Overall vac. (incl. sublet): YTD net absorption:

WHY THIS METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS

We include owner-occupied and single-tenant buildings in our inventory, vacancy, and absorption statistics. Doing so allows us to capture more market activity than many of our competitors, and to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. We also offer wider geographic coverage than some of our competitors. The result is that the inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than our competitors’ results, but our coverage of the market is more comprehensive.

540,00097,000

2,217,000 540,000

(70,000)(41,000)

1,249,000(54,000)

109,00091,000

576,000261,000

Multi-Tenant204.6%

13.6%2,020,000 SF

Entire Market251.1 MSF

10.9%

Strong job creation and the continued strength of the energy sector

San Francisco Bay Area and Atlanta lead the nation in office space absorbed this year, followed by Houston.



VACANCY CONTINUES TO DECLINE

The overall office vacancy rate (including sublet space) in the Hous-ton metro area fell to 10.9% as of September, down from 12.2% a year ago. Direct vacancy is currently 10.6%, a decrease from 11.7% one year ago. The continued strength of the local economy is driv-ing these figures down; direct vacancy is nearing its recent nadir of 10.2% in 2007.

ago. Overall vacancy rates for all classes in selected submarkets:

The overall office vacancy rate (including sublet space) in the Hous-ton metro will likely decline over the next two years, as increased demand outpaces a limited pipeline of new supply. Consequently, we expect overall vacancy to drop below 10% in two years. Without a major disruption in the regional economy, an atmosphere of rapid rent growth is on the horizon. However, the pipeline of new con-struction is rising along with expectations of greater demand.

CONSTRUCTION PIPELINE INCREASING

There is 3.6 million SF of office space under construction or renova-tion in the Houston metro area as of September, compared to 1.3 million SF one year ago. Space under construction now is 46% pre-leased, compared to 51% a year ago.

Anadarko Tower II at 1201 Lake Robbins Drive – a 550,000 SF build-to-suit in the Woodlands submarket – is still the largest office building

SF Energy Tower III at 11740 Katy Freeway in the Katy Freeway West submarket, which is 0% preleased.

7.2%7.4%

11.0%



The amount of office space under construction nationally is edging up, with market conditions gradually improving and financing be-

is under construction today, compared to 50.7 million SF one year ago. Houston has the fourth-most office space under construction, and at 3.6 million SF, it represents approximately 1.4% of the current metro inventory.

Deliveries have totaled 503,549 SF since the start of 2012, with 70% leased upon delivery.

OFFICE RENTS UP IN 2012

Asking rents for all classes of office space have risen approximately 2.4% in metro Houston during the first three quarters of 2012, af-

while Class B asking rents have increased 1.7%. Asking rents have surpassed their previous peak, which occurred in 2007. Rents have pulled back slightly recently as growth in the Energy sector deceler-ated over the past few months, but market fundamentals suggest further asking rent growth in the period ahead. Additionally, effec-tive rents are rising in certain submarkets as concessions decline in response to steady demand.

OFFICE SPACE UNDER CONSTRUCTION OR RENOVATION Houston Metro Area

Submarket SF % Pre-leased

Greenspoint/N Belt 150,000 100.0%

Katy Fwy/Energy Corridor 1,135,937 25.7%

Kingwood Humble 45,000 100.0%

Northwest 159,056 0.0%

SW Fwy/Sugar Land 40,000 0.0%

West Loop

Westchase 344,664 14.9%

Woodlands/Conroe

Total 3,618,503 46.0%

Source: Delta Associates’ analysis of CoStar data; October 2012.



Houston’s asking rent growth looks stronger when compared to ask-ing rent changes in other major markets. Rent growth in Houston is second in the country to San Francisco among major metros.

wide averages; newer buildings in more desirable submarkets are outperforming these market-wide averages.

Metro-wide asking rents will likely improve during the rest of 2012 as vacancy continues to decline and demand for space remains strong. At the submarket level, asking rents may continue fluctuating, with owners reacting quickly to changes in market fundamentals. On balance, as market conditions continue to improve, concessions will continue to disappear. Given the strong demand for Class A space YTD, rents for that product type should outperform in the period ahead. The next 12 months should bring material gains in rents.

THE HOUSTON METRO AREA OFFICE MARKET OUTLOOK

The Houston metro office market will likely remain strong in the period ahead, provided that the regional economy continues ex-panding at a healthy pace and is not disrupted by global forces. As businesses increase leasing activity, vacancy will continue declining, likely dropping below 10% over the next two years. As a result, rents will likely gain significant upward momentum in 2012-13. Office market conditions will likely turn in the landlord’s favor through the rest of 2012 and into 2013, as vacancy declines and the pipeline of new supply (presently at 1.7% of the standing inventory including planned space likely to deliver within two years) remains limited. Of note, the pipeline of new construction has been expanding in 2012 as developers have gained confidence in local market conditions and are more willing to put capital at risk.

Office submarkets likely to outperform in the months ahead, with declining vacancy and rising rents, include:

West Loop in general is a candidate for strong performance over the next two years as long as infrastructure improvements keep pace with new commercial deliveries. Also, with Exxon moving to its new campus nearby, The Woodlands promises to attract more energy-related tenants.



SUMMARY OF OFFICE MARKET INDICATORS - ALL SPACEHouston Metro Area | 2009 Through Q3 2012

1/ Includes buildings 15,000 SF RBA and greater. Does not include buildings under construction or buildings owned by the government.

2/ Does not include sublet space. Source: Inventory and Vacancy from analysis of CoStar data, Net Absorption computed by Delta Associates; October 2012. Delta Associates, the research affiliate of Transwestern, is headquartered at:

500 Montgomery Street, Suite 600, Alexandria, VA 22314; Phone: 703-836-5700; DeltaAssociates.com

Submarket

Q3 2012 Direct Vacancy Rate at the end of: Q3 2012 Net Absorption (SF) 2/

Total

Bldgs.

Total

Rentable SF

All Bldgs. 1/

SF Available

Immediately

All Bldgs. 2/

Vacancy

Rate

w/ Sublet

SF Under

Constr. or

Renovation 2009 2010 2011 Q3 2012 2009 2010 2011 Q3 2012 YTD 2012

Central Business District 112 9.3% 9.5% 9.3% - (71,000) (166,000) 1,552,000

Midtown 106 7,212,574 952,060 15.0% 14.7% 13.2% 13.2% 13.2% - 22,000 (65,000) 0

Downtown 218 55,285,545 5,134,408 9.8% 10.0% 10.0% 9.3% 9.8% - (552,000) (144,000) 1,660,000 320,000 385,000

I-45 North 42 2,270,142 15.5% 17.9% 16.3% 15.5% 15.5% - (35,000) 36,000 (5,000)

FM 1960 / Champions 665,706 21.2% 20.2% 22.5% 23.3% - 33,000 77,000 (47,000) (71,000)

FM 1960 / Highway 249 14.4% 30.4% 26.2% 17.2% 17.6% - (312,000) 120,000 134,000 14,000 669,000

FM 1960 238 12,122,643 2,203,313 16.2% 25.5% 22.9% 18.2% 18.6% - (251,000) 162,000 123,000 (62,000) 619,000

North Belt West/Greenspoint 90 13.7% 13.3% - (330,000) 42,000 106,000

Greenspoint / IAH 31 10.2% 11.1% 12.6% 13.0% 13.1% 150,000 (215,000) (47,000) (42,000) 60,000 3,000

Greenspoint / N Belt 121 13,433,691 1,725,003 13.1% 12.9% 13.6% 12.8% 13.7% 150,000 (545,000) (5,000) (70,000) 188,000 109,000

Greenway Plaza 99 12,166,960 1,143,694 11.4% 11.5% 9.8% 9.4% 9.5% - (127,000) (12,000) 232,000 (61,000) 49,000

Gulf Freeway/Pasadena 109 4,572,000 484,632 13.6% 11.7% 12.6% 10.6% 10.8% - 170,000 106,000 (41,000) 110,000 91,000

Katy Freeway East 111 11.4% 7.3% 6.2% 7.0% 571,776 1,042,000 331,000 105,000

Katy Freeway West 171 14.4% 14.2% 9.6% 7.4% 7.5% 564,161 (364,000) 1,144,000 109,000

Katy Fwy / Energy Corridor 282 30,583,045 2,156,958 13.4% 12.4% 8.9% 7.1% 7.4% 1,135,937 678,000 439,000 1,249,000 127,000 576,000

Kingwood / Humble 45 2,121,655 165,489 7.3% 8.4% 7.3% 7.8% 7.8% 45,000 (26,000) 17,000 47,000 (6,000) (10,000)

NASA / Clear Lake 171 9,643,387 1,263,284 8.7% 7.5% 10.6% 13.1% 13.2% - 70,000 104,000 (140,000) (48,000) (241,000)

Northeast 46 2,067,508 258,439 14.9% 10.6% 12.3% 12.5% 12.5% - (66,000) 82,000 (35,000) 2,000 (4,000)

North Loop West 71 21.7% 24.9% 19.6% 19.9% - (36,000) (175,000) (27,000) 292,000

Northwest Near 23 163,211 17.2% 10.4% 10.3% 10.3% - - (10,000) 3,000 1,000

Northwest Far 96 20.5% 19.1% 12.2% 12.3% 12.6% 159,056 110,000 540,000 0

Northwest 190 14,910,520 2,203,649 19.5% 19.1% 16.7% 14.8% 15.0% 159,056 712,000 19,000 355,000 (24,000) 285,000

South Main / Medical Center 88 11,135,712 801,771 6.3% 7.0% 6.9% 7.2% 7.2% - 244,000 (71,000) 12,000 (11,000) (33,000)

Southwest / Hillcroft 59 4,743,707 20.6% 19.2% 16.0% 14.3% 14.3% - (60,000) 65,000 152,000 104,000

7,354,337 1,264,946 14.2% 16.6% 19.2% 17.2% 17.2% - 17,000 (190,000) (433,000) 163,000

East Ft Bend Co. / Sugar Land 149 1,456,102 13.9% 16.6% 16.4% 17.4% 40,000 179,000 (432,000) 227,000 (9,000)

Southwest Fwy / Sugar Land 306 20,976,715 3,399,398 15.5% 18.1% 17.4% 16.2% 16.6% 40,000 136,000 (557,000) (54,000) 163,000 261,000

Bellaire 42 303,906 6.9% 7.0% 10.3% 6.4% 6.4% - (90,000) (4,000) (156,000) 43,000

Post Oak Park 34 725,323 12.2% 11.2% 9.9% 15.2% 15.5% - (97,000) 47,000 62,000 67,000 (253,000)

Galleria 55 13.9% 9.0% 9.1% 9.2% (767,000) 321,000 (31,000) (122,000) (15,000)

Riverway 22 373,456 7.7% 9.5% 10.4% 12.1% 12.3% - (72,000) 12,000 (46,000) (52,000)

Richmond / Fountainview 44 351,429 11.0% 6.7% 9.9% 19.7% 19.7% - (23,000) 76,000 (9,000) 7,000

San Felipe / Voss 43 664,261 9.9% 11.2% 10.6% 12.1% 12.3% - (127,000) (71,000) 33,000 (110,000)

West Loop 240 35,139,286 3,806,927 11.1% 9.2% 9.7% 10.8% 11.0% 608,548 (1,176,000) 381,000 (178,000) (177,000) (211,000)

Westchase 108 15,513,952 1,303,172 12.3% 12.7% 11.4% 8.4% 8.5% 344,664 (258,000) (62,000) 203,000 47,000 466,000

The Woodlands 136 9.5% 9.9% 6.7% 5.6% 5.9% 1,112,693 303,000 420,000 61,000 275,000

Conroe 45 92,612 6.6% 7.1% 7.1% 5.1% 5.1% 22,605 102,000 (2,000) (27,000) 231,000

Woodlands / Conroe 181 11,474,620 633,499 9.2% 9.5% 6.8% 5.5% 5.8% 1,135,298 405,000 256,000 393,000 292,000 523,000

TOTAL - Houston 2,442 251,147,239 26,683,636 12.6% 12.3% 11.5% 10.6% 10.9% 3,618,503 (586,000) 715,000 3,756,000 860,000 2,865,000

Vacancy Rate with Sublet Space 13.5% 12.9% 12.0% 10.9%



SUMMARY OF OFFICE MARKET INDICATORS - CLASS A SPACE 1/

Houston Metro Area | 2009 Through Q3 2012

1/ Class A buildings per CoStar that are greater than 50,000 SF. Does not include buildings under construction or owned by the government. 2/ Does not include sublet space. 3/ Inventory adjusted per changes in CoStar database. Source: Inventory and Vacancy from analysis of CoStar data, Net Absorption computed by Delta Associates; October 2012. Delta Associates, the research affiliate of Transwestern, is headquartered at: 500 Montgomery Street, Suite 600, Alexandria, VA 22314; Phone: 703-836-5700; DeltaAssociates.com

Submarket

Q3 2012 Net Absorption (SF) 2/

Total

Bldgs.

Total

Rentable SF

All Bldgs. 1/

SF Avail.

Immediately

All Bldgs. 2/

Vacancy

Rate 2/

Vacancy

Rate

w/ Sublet

SF Under

Constr. or

Renovation 2009 2010 2011 Q3 2012 YTD 2012

Central Business District 31 30,200,614 6.4% 7.2% - 107,000 1,406,000 151,000

Midtown 4 124,421 - (313,000) 2,000 9,000 (5,000) 67,000

Downtown 35 32,030,339 2,057,261 6.4% 7.2% - (206,000) (196,000) 1,415,000 146,000 249,000

I-45 North 2 347,015 29,149 - (1,000) (15,000) 21,000 0 (1,000)

FM 1960 / Champions 1 150,000 - 0.0% 0.0% - - - - - -

FM 1960 / Highway 249 17 2,725,914 656,945 24.1% 24.2% - (299,000) 102,000 22,000 (3,000) 672,000

FM 1960 20 3,222,929 686,095 21.3% 21.4% - (300,000) 87,000 43,000 (3,000) 671,000

North Belt West/Greenspoint 15 204,042 5.5% 6.6% - 13,000 (70,000) 11,000 (19,000)

Greenspoint / IAH 5 94,626 11.3% 11.3% 150,000 67,000 (22,000) 23,000

Greenspoint / N Belt 20 4,547,246 298,668 6.6% 7.5% 150,000 (15,000) 49,000 (92,000) 34,000 (11,000)

Greenway Plaza 15 6,168,363 499,637 8.1% 8.3% - (85,000) 44,000 104,000 (93,000) 204,000

Gulf Freeway/Pasadena 1 52,362 8,273 15.8% 15.8% - 50,000 8,000 2,000 - 5,000

Katy Freeway East 14 3,576,229 146,625 4.1% 5.5% 571,776 357,000 32,000 122,000

Katy Freeway West 11,524,605 564,161 (9,000) 77,000 1,095,000 23,000 426,000

Katy Fwy / Energy Corridor 62 15,100,834 469,314 3.1% 3.4% 1,135,937 803,000 434,000 1,127,000 41,000 548,000

Kingwood / Humble 1 90,000 40,950 45.5% 45.5% 45,000 - - (70,000) - -

NASA / Clear Lake 13 1,914,706 233,594 12.2% 12.2% - (3,000) (43,000) (27,000) (4,000) 31,000

Northeast - - - 0.0% 0.0% - - - - - -

North Loop West 5 262,570 24.9% 25.7% - (137,000) 1,000 21,000 (6,000) (2,000)

Northwest Near 1 - 0.0% 0.0% - - - - - -

Northwest Far 15 2,520,121 11.3% 12.0% 159,056 597,000 37,000

Northwest 21 3,812,003 547,344 14.4% 15.0% 159,056 460,000 38,000 289,000 52,000 36,000

South Main / Medical Center 14 4,474,422 335,582 7.5% 7.6% - 134,000 39,000 96,000 13,000 35,000

Southwest / Hillcroft 6 249,539 - (54,000) 67,000 25,000 42,000

3 573,152 96,290 17.4% - (109,000) 42,000 19,000 (21,000)

East Ft Bend Co. / Sugar Land

22 3,705,430 23.4% 23.6% - (46,000) (372,000) 52,000 19,000 115,000

Southwest Fwy / Sugar Land

31 5,763,934 1,212,899 21.0% 21.2% - (209,000) (408,000) 138,000 23,000 149,000

Bellaire 7 7.4% 7.4% - (2,000) (3,000) (14,000) 21,000 (2,000)

Post Oak Park 6 129,403 6.9% 7.1% - 111,000 (10,000) (53,000) 30,000 (26,000)

Galleria 25 (463,000) 229,000 (19,000) (66,000) (11,000)

Riverway 12.5% - (54,000) 27,000 10,000 (43,000) (92,000)

Richmond / Fountainview - - - - - - - - - - -

San Felipe / Voss 3 1,714,029 19.1% 19.1% - (77,000) (46,000) 7,000 (57,000)

West Loop 49 17,795,109 1,688,838 9.5% 9.7% 608,548 (485,000) 197,000 (69,000) (115,000) (209,000)

Westchase 21 6,636,105 384,894 5.8% 6.0% 344,664 (253,000) (111,000) 363,000 13,000 384,000

The Woodlands 20 137,336 3.6% 3.9% 303,000 17,000 125,000

Conroe 2 3,736 2.9% 2.9% - - - (4,000) - -

Woodlands / Conroe 22 3,943,714 141,072 3.6% 3.9% 1,082,693 128,000 248,000 299,000 17,000 125,000

TOTAL - Houston 325 105,552,066 8,604,420 8.2% 8.6% 3,525,898 19,000 388,000 3,618,000 124,000 2,217,000



SUMMARY OF OFFICE MARKET INDICATORS - CLASS B SPACE 1/

Houston Metro Area | 2009 Through Q3 2012

Submarket

Q3 2012 Net Absorption (SF) 2/

Total

Bldgs.

Total

Rentable SF

All Bldgs. 1/

SF Avail.

Immediately

All Bldgs. 2/

Vacancy

Rate 2/

Vacancy

Rate

w/ Sublet

SF Under

Constr. or

Renovation 2009 2010 2011 Q3 2012 YTD 2012

Central Business District 41 1,353,650 9.9% - (171,000) (9,000) 194,000 166,000

Midtown 50 367,404 9.4% 9.6% - (13,000) (23,000) (66,000) (74,000)

Downtown 91 17,721,316 1,721,055 9.7% 9.8% - (184,000) (32,000) 222,000 100,000 106,000

I-45 North 30 1,606,441 252,211 15.7% 15.7% - (17,000) (36,000) 20,000 (3,000) 14,000

FM 1960 / Champions 47 2,424,240 - 29,000 56,000 (51,000) (70,000) (77,000)

FM 1960 / Highway 249 91 509,710 13.6% 14.4% - 66,000 24,000 141,000 15,000

FM 1960 168 7,778,552 1,445,557 19.1% - 78,000 44,000 110,000 (58,000) (81,000)

North Belt West/Greenspoint 49 5,476,371 914,554 16.7% 17.7% - (379,000) 1,000 112,000 66,000

Greenspoint / IAH 19 259,454 14.6% - 39,000 (111,000) (52,000) 41,000 (3,000)

Greenspoint / N Belt 68 7,253,452 1,174,008 16.2% 17.0% - (340,000) (110,000) 60,000 123,000 63,000

Greenway Plaza 40 3,988,808 291,183 7.3% 7.4% - 41,000 (21,000) 17,000 24,000 (113,000)

Gulf Freeway/Pasadena 58 2,883,887 328,763 11.4% 11.6% - 213,000 24,000 (20,000) 115,000 100,000

Katy Freeway East 41 3,094,523 9.2% - (46,000) (20,000) 25,000 (3,000) (15,000)

Katy Freeway West 102 9,622,766 1,231,714 12.9% - (93,000) 61,000 (4,000) 67,000 47,000

Katy Fwy / Energy Corridor 143 12,717,289 1,488,559 11.7% 12.0% - (139,000) 41,000 21,000 64,000 32,000

Kingwood / Humble 29 1,467,056 98,293 6.7% 6.8% - (7,000) 16,000 56,000 (6,000) (8,000)

NASA / Clear Lake 105 6,811,810 940,030 13.8% 13.9% - 77,000 123,000 27,000 7,000 (239,000)

Northeast 27 1,276,209 236,099 18.5% - 46,000 19,000 (45,000) 5,000 2,000

North Loop West 3,556,405 21.2% 21.5% - 150,000 (197,000) (5,000) (21,000) 249,000

Northwest Near 11 109,959 12.9% 12.9% - (2,000) 62,000 (1,000) 3,000 3,000

Northwest Far 53 4,411,940 617,672 14.0% 14.2% - 249,000 29,000 (13,000) (35,000) (30,000)

Northwest 102 8,820,739 1,481,588 16.8% 17.0% - 397,000 (106,000) (19,000) (53,000) 222,000

South Main / Medical Center 39 4,239,998 322,240 7.6% 7.6% - 46,000 (117,000) 69,000 (17,000) (47,000)

Southwest / Hillcroft 22 1,956,544 360,004 - (59,000) 49,000 9,000 90,000 41,000

60 1,011,577 19.2% 19.3% - 51,000 (230,000) (367,000) 105,000

East Ft Bend Co. / Sugar Land 110 12.0% 13.9% 40,000 176,000 141,000 174,000 (10,000) (91,000)

Southwest Fwy / Sugar Land 192 12,005,011 1,945,161 16.2% 17.0% 40,000 168,000 (40,000) (184,000) 185,000 108,000

Bellaire 22 175,926 6.1% 6.1% - 17,000 9,000 (164,000) 23,000 112,000

Post Oak Park 24 2,653,133 22.1% 22.4% - (123,000) (6,000) 31,000 45,000 (225,000)

Galleria 25 12.0% 12.0% - (344,000) 113,000 (49,000) 17,000

Riverway 14 1,039,510 137,215 13.2% 13.2% - (2,000) (20,000) (6,000) 32,000

Richmond / Fountainview 17 263,715 30.3% 30.3% - 20,000 1,000 (24,000) (10,000) (2,000)

San Felipe / Voss 36 3,569,141 7.9% - 36,000 (43,000) 4,000

West Loop 138 15,099,655 1,935,180 12.8% 12.9% - (526,000) 69,000 (167,000) (40,000) (62,000)

Westchase 67 7,861,837 849,078 10.8% 10.9% - 21,000 44,000 (166,000) 16,000 78,000

The Woodlands 5,322,791 404,532 7.6% 7.9% 30,000 175,000 29,000 21,000 132,000

Conroe 21 5.3% 5.3% 22,605 106,000 (4,000) (22,000) 232,000 247,000

Woodlands / Conroe 119 6,310,308 456,871 7.2% 7.5% 52,605 281,000 25,000 60,000 253,000 379,000

TOTAL - Houston 1,386 116,235,927 14,713,665 12.7% 12.9% 92,605 172,000 (21,000) 41,000 718,000 540,000

1/ Class B per CoStar, and buildings under 50,000 SF even if CoStar classified them as Class A. Does not include buildings under construction or owned by the government. 2/ Does not include sublet space. 3/ Inventory adjusted per changes in CoStar database. Source: Inventory and Vacancy from analysis of CoStar data, Net Absorption computed by Delta Associates; October 2012.Delta Associates, the research affiliate of Transwestern, is headquartered at: 500 Montgomery Street, Suite 600, Alexandria, VA 22314; Phone: 703-836-5700; DeltaAssociates.com



Average Asking Rent ($’s/SF, GFS) At End Of:

2009 2010 2011 Q3 2012%Change

12/11-9/12

Submarket Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B

Central Business District $29.20 $23.94 $29.95 $24.97 $30.59 $25.13 $32.04 -100.0% -1.0%

Midtown $26.37 $22.29 $23.54 $22.36 $23.06 3.6% 5.5%

Downtown $28.89 $22.89 $29.23 $23.73 $30.04 $23.77 $31.45 $23.86 4.7% 0.4%

I-45 North $20.93 $16.20 $20.22 $16.97 $16.20 $16.05 $16.97 -5.4%

FM 1960 / Champions - - $13.40 - - $13.57 - 5.6%

FM 1960 / Highway 249 $27.21 $19.94 $20.21 $25.57 $19.67 $24.57 $19.57 -3.9% -0.5%

FM 1960 $26.92 $17.45 $26.96 $16.65 $25.11 $16.42 $24.11 $16.96 -4.0% 3.3%

North Belt West/Greenspoint $20.96 $16.54 $20.07 $20.51 $16.17 $22.13 $16.64 7.9% 2.9%

Greenspoint / IAH $21.17 $16.26 $23.23 $15.24 $16.91 0.1% -6.1%

Greenspoint / N Belt $20.58 $16.51 $20.49 $15.72 $20.68 $16.36 $21.81 $16.51 5.5% 0.9%

Greenway Plaza $25.49 $20.95 $23.61 $21.50 $24.49 $20.52 $25.13 $20.68 2.6% 0.8%

Gulf Freeway/Pasadena - $18.43 $24.25 $19.95 $24.25 $20.72 $25.69 $20.57 6.0% -0.8%

Katy Freeway East $23.05 $25.35 $17.99 $20.19 -22.3% 5.5%

Katy Freeway West $24.23 $24.46 $25.32 $23.53 -7.0% 3.4%

Katy Fwy / Energy Corridor $24.79 $18.36 $25.31 $18.36 $26.14 $18.72 $23.05 $19.43 -11.8% 3.8%

Kingwood / Humble $27.50 $16.17 $29.50 $16.49 $30.10 $16.44 $30.10 $16.43 0.0% -0.1%

NASA / Clear Lake $20.83 $21.44 $21.29 $20.46 $23.93 $20.82 $23.48 $20.16 -1.9% -3.2%

Northeast - $13.75 - $13.67 - $13.55 - $14.28 - 5.3%

North Loop West $20.51 $15.65 $20.96 $15.62 $15.94 $21.22 $15.65 6.2%

Northwest Near - - - $14.39 - - 3.2%

Northwest Far $25.19 $14.41 $26.79 $14.29 $25.04 $14.17 $22.53 $13.96 -10.0% -1.5%

Northwest $24.11 $15.13 $25.41 $15.07 $23.96 $15.17 $23.42 $14.98 -2.2% -1.3%

South Main / Medical Center $29.16 $22.13 $27.65 $21.88 $28.09 $25.85 $28.20 $24.92 0.4% -3.6%

Southwest / Hillcroft $13.91 $13.76 $13.76 $15.23 1.7% 0.5%

$19.26 $17.06 $16.45 $19.33 $17.29 $19.33 0.0%

East Ft Bend Co. / Sugar Land $29.16 $19.77 $29.21 $27.04 1.2%

Southwest Fwy / Sugar Land $22.73 $16.58 $22.48 $15.93 $21.58 $16.33 $21.84 $15.73 1.2% -3.7%

Bellaire $16.33 $23.13 $14.77 $24.21 $14.65 -0.9%

Post Oak Park $29.67 $30.91 $15.77 $31.47 $32.53 3.4% 12.7%

Galleria $26.90 $22.41 $20.32 $20.40 $29.03 3.6% 2.3%

Riverway $25.01 $20.90 $25.47 $20.19 $27.42 $19.90 $29.66 9.6%

Richmond / Fountainview - $15.39 - $16.69 - $16.95 - $17.37 - 2.5%

San Felipe / Voss $30.19 $19.36 $29.94 $19.45 $32.37 $19.57 $33.77 $20.21 4.3% 3.2%

West Loop $27.14 $19.35 $27.81 $18.78 $28.53 $19.08 $29.79 $20.19 4.4% 5.9%

Westchase $23.88 $19.26 $26.72 $18.89 $23.95 $17.50 $26.88 $18.12 12.2% 3.6%

The Woodlands $22.49 $20.34 $22.76 $20.11 $22.06 $21.16 $23.10 $22.42 4.7% 5.9%

Conroe - $14.57 - $14.91 $30.67 $29.54 $24.69 -3.7% 33.1%

Woodlands / Conroe $22.49 $19.46 $22.76 $19.34 $22.24 $21.11 $23.24 $23.02 4.5% 9.0%

TOTAL - Houston $25.49 $18.35 $25.86 $18.30 $26.08 $18.48 $26.82 $18.78 2.8% 1.7%

ASKING RENTAL RATE ANALYSIS OF CLASS A & B OFFICE BUILDINGSHouston Metro Area | 2009 Through Q3 2012

Note: Rents for properties using triple net terms have been grossed up to full service by applying operating expense data. Rents reflect full service equivalent. Note: Due to small submarket sample sizes in some cases, particularly in Class A, rent increases and decreases may be magnified relative to other submarkets. Source: Delta Associates analysis of CoStar data; September 2012. Delta Associates, the research affiliate of Transwestern, is headquartered at: 500 Montgomery Street, Suite 600, Alexandria, VA 22314; Phone: 703-836-5700; DeltaAssociates.com



HOUSTON METRO INDUSTRIAL MARKET

SECTION FIVE

THE



MARKET FUNDAMENTALS REMAIN STURDY,SHOULD GAIN FURTHER MOMENTUM

The fundamentals of the Houston industrial market have continued to improve in 2012, with vacancy remaining among the lowest in the nation and continuing to decline. While absorption has decelerat-ed some compared to the levels seen in 2011, performance is still strong relative to peer cities and is poised for further improvement with the expansion of the Panama Canal now underway and set to be completed in 2015. By 2013, the Port of Houston will be equipped to handle a larger volume of shipments coming from the Pacific, which should help to bolster the broader industrial market.

WHY THIS METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS

We include owner-occupied and single-tenant buildings in our inventory, vacancy, and absorption statistics. Doing so allows us to capture more market activity than many of our competitors, and to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all compo-nents of the market. We also include flex space in our indus-trial market analysis, and offer wider geographic coverage than some of our competitors. The result of these differences is that the inclusion of single-tenant and owner-occupied space, as well as flex space, tends to yield lower vacancy rates and higher absorption totals than our competitors’ results, but our coverage of the market is more comprehensive.



ABSORPTION STEADY IN 2012

Net absorption of industrial space in the Houston metro totaled 3.3 mil-lion SF through the first three quarters of 2012, compared to a total of 6.3 million SF in 2011. Businesses are continuing to expand as the local economy strengthens and consumer spending gradually increases.

In terms of net absorption in 2012, Houston has been a steady per-former among major markets, ranking behind the Chicago and Dal-las/Ft. Worth markets but ahead of the LA Basin, NY/Northern NJ, and Washington/Baltimore markets. Houston’s absorption may be artificially low relative to its economic performance because there is so little available industrial space to be leased.

The Houston industrial market is on pace to absorb about 4.3 million SF of space in 2012. The Warehouse/Distribution sector makes up

space absorbed thus far in 2012.

Notable leases during 2012 include:

N Citypark Loop in the NE Highway 90 submarket.

the Northwest Near submarket.

Road in the North Far submarket.

in the Northwest Near submarket.

Bay Area Boulevard in the East-Southeast Far submarket.

4331 Underwood Drive in the East-Southeast Far submarket.

HOW THE MULTI-TENANT MARKET COMPARESTO OUR MARKET COVERAGE

Vacancy and absorption in the Houston metro area often are re-ported by brokerage firms on multi-tenant buildings only. We in-clude owner-occupied and single-tenant buildings as well, on the basis of immediate availability, to capture more market activity. We exclude government-owned space. As a point of compari-son, below is data for the Houston multi-tenant industrial market at Q3 2012: Multi-Tenant Entire Market

YTD net absorption: 197,000 SF 3,256,000 SF

2011 (SF)5,329,000

627,000349,000

YTD (SF)2,741,000

435,000



INDUSTRIAL VACANCY TICKS UP;STILL AMONG LOWEST IN U.S.

The overall Houston metro area industrial vacancy rate declined to 4.6% in September 2012 from 5.3% a year earlier. The direct industri-al vacancy rate, 4.5% in September, is down from 5.2% a year earlier.

Current vacancy rates by product type:

Houston’s industrial vacancy rate will likely decline to nearly 4.0% one year from now, as steady demand continues to outpace the pipeline of new supply. Vacancy will continue to decline until the development of new product escalates.

PIPELINE REMAINS STEADY

There is currently 2.3 million SF of industrial space under construc-tion in metro Houston, similar to the 2.3 million SF under construc-tion a year ago. Warehouse/Distribution product comprises 94% of space under construction. Space under construction today is 43%

-ects built over the past two years have been free-standing user build-ings for sale or lease to support the growing energy sector. With the pipeline still at only 0.7% of standing inventory, more developers are breaking ground on new projects, especially warehouse/distribution buildings. Build-to-suit projects also are moving forward.

Direct4.4%1.7%

Overall4.5%1.9%

10.0%



Deliveries in Houston have totaled 3.0 million SF thus far in 2012, compared to 1.6 million SF at the same point last year. Even with these deliveries, the market has been underserved from a develop-ment standpoint in 2012.

INDUSTRIAL ASKING RENTS: RISING

Industrial asking rents are up modestly in 2012. The September 2012 average asking rent for all types of industrial space was $5.32/SF, triple net.

Meanwhile, concessions are retreating and effective rents are un-der less pressure. Steady demand should support continued rent increases through the rest of 2012 and into 2013, given the already-low vacancy rate in the Houston industrial market. While some concern remains due to macroeconomic factors that could impact the distribution needs of retailers, the Houston industrial market is among the best positioned in the country for future rent growth.

METRO HOUSTON INDUSTRIAL MARKET OUTLOOK

The Houston metro industrial market will likely experience continued growth in the near term. However, global economic uncertainty re-mains high and could potentially check domestic economic growth. If growth accelerates, vacancy will continue to decline into 2013, as demand outpaces new supply. If construction remains minimal, in-dustrial rents will rise, with concessions burning off quickly, as mar-ket conditions turn further in the landlord’s favor. Groundbreakings are increasing, however, in response to the market’s very low vacan-cy rate and the positive outlook of the trade/transportation sector.

Industrial submarkets likely to outperform in the period ahead, with declining vacancy and rising rents, include:



Submarket

Q3 2012

Direct Vacancy Rate at the end of:

Q3 2012

Net Absorption (SF) 2/ Total

Rentable SF

All Bldgs. 1/

SF Available

Immediately

All Bldgs. 2/

Vacancy

Rate

w/ Sublet

SF Under

Constr. or


Central Business District

Flex/R & D 13.9% - 13,000 45,000 (5,000) - 4,000

Manufacturing 3/ 1.9% 5.6% 4.3% 1.9% 1.9% - 64,000 137,000

Warehouse/Distribution 4.5% 5.2% 6.3% 6.3% (134,000) (209,000) 120,000 (119,000) (447,000)

Total - Central Business District

2,064,562 4.4% 5.3% 5.6% 5.6% (129,000) 179,000 (1,000) (306,000)

East-Southeast Far

Flex/R & D 2,937,496 373,062 12.0% 9.5% 12.7% 12.9% - (4,000) 54,000 (34,000)

Manufacturing 5,246,955 10,494 4.0% 2.7% 0.5% 0.2% 0.2% 32,000 (50,000) 61,000 202,000 0 16,000

Warehouse/Distribution 45,527,537 11.6% 11.4% 75,115 2,053,000 (120,000) 965,000 472,000

Total - East-Southeast Far 4,344,452 11.3% 10.6% 7.5% 107,115 1,999,000 21,000 1,221,000 796,000 401,000

North Far

Flex/R & D 7,639,993 710,519 10.0% 10.9% 9.3% 9.3% 9.3% - 221,000 (197,000) 214,000 40,000 59,000

Manufacturing 1.0% 2.4% 2.7% 33,000 (27,000) (17,000) 57,000 109,000

Warehouse/Distribution 9.2% 6.0% 4.3% 4.5% 4.5% 524,459 613,000 1,163,000 1,021,000 293,000

Total - North Far 6.3% 557,459 390,000

North Near

Flex/R & D 12.2% 15.2% 22.9% - 24,000 (32,000) (92,000) 23,000

Manufacturing 2,626,374 2.4% 3.1% 0.9% 0.7% 0.7% - (19,000) 0 5,000

Warehouse/Distribution 15,452,192 633,540 4.1% 4.1% 4.1% 211,000 21,000 13,000 296,000

Total - North Near 4.0% 4.7% 5.4% 4.4% 4.4% 423,000 (30,000) 264,000 36,000

Northeast Far

Flex/R & D 96,952 - 2.7% 2.7% 2.7% 0.0% 0.0% 34,261 - - - - 3,000

Manufacturing 196,600 - 0.0% 0.0% 0.0% 0.0% 0.0% - - - - - -

Warehouse/Distribution 3/ 23,443 0.7% 0.3% 0.7% 1.6% 2.1% - (5,000) 4,000 (5,000) - (11,000)

Total - Northeast Far 23,443 1.0% 0.4% 0.7% 1.3% 1.7% 34,261 (5,000) 4,000 (5,000) -

Northeast Near

Flex/R & D 3/ 912,144 61,114 0.5% 6.7% 6.7% - 29,000 2,000 (5,000) 17,000

Manufacturing 5,937,172 100,932 1.4% 4.9% 1.7% - (43,000) (141,000) 244,000 6,000 (54,000)

Warehouse/Distribution 26,902,756 2.0% 3.7% 3.5% 3.0% 3.1% 61,400 603,000 (173,000) 113,000 (135,000) 173,000

Total - Northeast Near 33,752,072 1.9% 4.1% 3.1% 2.9% 3.3% 61,400 (392,000) 359,000 (134,000) 136,000

Northwest Far

Flex/R & D 5,435,616 304,394 5.6% 5.4% 5.6% 6.4% - 3,000 566,000 (43,000) 59,000

Manufacturing 3/ 217,157 7.4% 4.2% 3.7% 3.0% 3.0% - (106,000) 299,000 31,000 0 44,000

Warehouse/Distribution 6.4% 5.1% 3.4% 2.9% 3.1% (7,000) 1,203,000 133,000

Total - Northwest Far 63,360,322 1,991,450 7.2% 5.0% 3.6% 3.1% 3.4% (110,000) 1,272,000 90,000 711,000

Northwest Near

Flex/R & D 11,504,223 10.5% 9.7% 9.0% 9.6% - (164,000) 297,000 93,000 (35,000)

Manufacturing 3/ 96,213 1.4% 1.7% 3.3% 0.9% 0.9% - 21,000 (27,000) (144,000) 53,000 224,000

Warehouse/Distribution 2,900,922 5.3% 4.9% 4.3% 3.6% 372,241 (700,000) 320,000 530,000 297,000

Total - Northwest Near 102,775,656 4,032,514 5.7% 5.3% 3.9% 4.1% 372,241 590,000 479,000 315,000 1,163,000

SUMMARY OF INDUSTRIAL MARKET INDICATORS - ALL SPACEHouston Metro Area | 2009 Through Q3 2012

See next page for balance of Houston Industrial Summary



Submarket

Q3 2012

Direct Vacancy Rate at the end of:

Q3 2012

Net Absorption (SF) 2/ Total

Rentable SF

All Bldgs. 1/

SF Available

Immediately

All Bldgs. 2/

Vacancy

Rate

w/ Sublet

SF Under

Constr. or


South Far

Flex/R & D 1,709,126 167,494 12.3% 11.0% 10.5% 6,333 7,000 (15,000) 12,000

Manufacturing 6,010,516 2.1% 2.9% 4.7% 4.7% - - (33,000) 61,000 30,000 (174,000)

Warehouse/Distribution 964,990 4.4% 4.3% 2.9% 3.5% 3.6% 27,500 226,000 33,000 521,000 (197,000)

Total - South Far 35,290,790 1,414,979 4.3% 4.4% 3.1% 4.0% 4.1% 506,000 7,000 590,000 (250,000)

South Near

Flex/R & D 176,765 10.3% 22.0% 22.0% - 30,000 (25,000) (12,000) (23,000) (31,000)

Manufacturing 3/ 1,696,371 3.7% 3.6% 3.9% 3.9% - 15,000 (2,000) 3,000 (4,000)

Warehouse/Distribution 12,169,760 2.5% 3.2% 3.5% - (220,000) 244,000 (12,000)

Total - South Near 632,356 4.1% 2.5% 3.5% 4.3% 4.6% - (175,000) 217,000 (95,000) (43,000) (120,000)

Southeast Near

Flex/R & D 3/ 461,763 77,576 21.3% 20.2% - (16,000) 6,000 1,000

Manufacturing 7,673,620 - 0.2% 0.2% 0.0% 0.0% 0.0% - 21,000 - 14,000 - -

Warehouse/Distribution 29,507,769 531,140 2.0% 2.7% 2.3% - 175,000 (59,000) (59,000)

Total - Southeast Near 37,643,152 2.5% 2.1% 1.6% 1.6% - (75,000) 166,000

Southwest Far

Flex/R & D 6.6% 7.9% 24.1% - 222,000 (33,000) (26,000) (33,000)

Manufacturing 3/ 6.7% 4.4% 5.9% 5.9% - 133,000 35,000 64,000 (20,000) (20,000)

Warehouse/Distribution 9,531,923 4.3% 4.5% 4.5% 19,264 117,000 57,000 71,000

Total - Southwest Far 12,652,342 1,026,991 6.0% 7.7% 19,264 119,000 119,000 4,000 (33,000)

Southwest Near

Flex/R & D 7.6% 7.0% 6.4% 7.4% 7.4% - 195,000 45,000 5,000

Manufacturing 3,967,609 91,255 4.9% 3.6% 2.7% 2.3% 2.4% - - 53,000 35,000 (12,000) 60,000

Warehouse/Distribution 1,567,799 7.1% 5.0% 4.2% (574,000) 675,000 (24,000) 290,000

Total - Southwest Near 2,259,072 7.0% 5.2% 4.4% 4.2% 4.2% (379,000) 773,000 425,000 (44,000) 269,000

Sugar Land

Flex/R & D 3/ 13.6% 11.9% 9.6% 30,000 - 47,000 64,000 (13,000) 26,000

Manufacturing 2,201,413 4,403 0.0% 0.7% 0.0% 0.2% 0.2% - - (13,000) 12,000 92,000 92,000

Warehouse/Distribution 4.6% 5.9% 6.1% 7.3% 6,011 66,000 65,000 (34,000) (203,000)

Total - Sugar Land 5.6% 6.3% 5.9% 7.2% 36,011 66,000 141,000 45,000

Total Houston

Flex/R & D 11.2% 10.0% 9.7% 10.0% 70,594 706,000 349,000 (145,000)

Manufacturing 66,402,604 2.2% 2.9% 2.1% 1.7% 1.9% 65,000 144,000 (57,000) 627,000 316,000 435,000

Warehouse/Distribution 5.3% 4.4% 4.4% 4.5% 3,679,000 5,329,000 1,043,000 2,741,000

Total - Houston 547,771,279 24,604,712 5.8% 5.4% 4.6% 4.5% 4.6% 2,317,054 3,855,000 4,328,000 6,305,000 1,214,000 3,256,000

Vacancy Rate with Sublet Space 6.0% 5.6% 4.7% 4.6%

SUMMARY OF INDUSTRIAL MARKET INDICATORS - ALL SPACE (continued) C-Houston Metro Area | 2009 Through Q3 2012

1/ Does not include buildings under construction or buildings owned by the government. 2/ Does not include sublet space. 3/ Inventory adjusted per changes in CoStar database.

Source: Inventory and Vacancy from analysis of CoStar data, Net Absorption computed by Delta Associates; October 2012.

Delta Associates, the research affiliate of Transwestern, is headquartered at: 500 Montgomery Street, Suite 600, Alexandria, VA 22314; Phone: 703-836-5700; DeltaAssociates.com



OFFICE AND INDUSTRIAL INVESTMENT TRENDS

SECTION SIX



OFFICE INVESTMENT SALES

Investment sales of office assets have plateaued near 2011 levels af-ter bouncing back in the wake of the recession. Annualized national office volume for 2012 totals $62.9 billion, compared to $64.7 bil-

the volume seen last year. While job growth and improving market fundamentals hold promise for investors, continued unease over the state of the national economy is preventing a faster turnaround with more robust volume.

In both the long term and short term, real estate investment has out-performed stocks and bonds. After a precipitous fall following the housing bubble and recession, real estate has again proved to be a

increase in the NAREIT Equity REIT Index. The NCREIF Property In-dex increased 12.04% during the same period, while stocks (as mea-sured by the S&P 500) rose 5.45%. Direct investment in real estate is likely still undervalued at this point in the cycle compared to the alternatives. While real threats face office market investors – notably concerns about continued economic growth and job creation – re-turns have been solid. Loan balances coming due in 2013 remain a concern. Nationally, on balance, asset performance has improved, with vacancy trending lower. Improving performance may allow some borrowers to refinance who otherwise would not have been able.



After peaking in 2009, U.S. office cap rates began their decline and have reached their lowest level since the recession. The mean cap rate in the U.S. in 2012 is 7.3% for core office assets, down from 7.4% in 2011 and from 7.6% in 2010, according to Real Capital Analytics. We believe cap rates will remain fairly stable through the remainder of 2012 as market conditions continue to firm. Given the sluggish pace of economic recovery, we expect interest rates to remain low into 2015, helping to keep cap rates fairly stable. However, mod-est job growth is likely to translate into middling demand for office space in 2013, which may reduce investors’ appetite for office prod-uct and cause cap rates to edge up.

Looking at the NCREIF Property Index, total returns have improved in 2012, particularly in Houston, which saw a large jump in returns com-pared to 2011. Houston’s office asset returns are 13.59% over the 12 months ending June 2012 after a return of 7.24% for the 12 months ending June 2011. The returns in Houston lagged behind only San Francisco and Boston and surpassed the national average of 10.54%. This robust performance can be attributed largely to the energy sec-tor, Houston’s most important core industry.

Recent activity in Houston’s office investment market was highlighted by the sale of Shell Plaza Towers to the Duncan Family, which closed in August for $550 million, or $307/SF. The 3rd quarter alone ac-counted for 56% of the $1.6 billion in total sales in 2012. Sales vol-ume totaled $2.9 billion in all of 2011, which could be surpassed in 2012 with Williams Tower in the Galleria submarket and the Kinder Morgan Tower in the CBD submarket on the market for up to $475 million and $400 million, respectively.

Houston’s office sales volume ranks it seventh in the nation. The New

NCREIF RETURN INDEX1/

Office Properties

Metro Area12-Month Total Return at

Mid-Year 2012

San Francisco 22.75%

Boston 16.20%

Houston 13.59%

Denver

Dallas 11.60%

National Average 10.54%

New York 10.12%

Los Angeles

Chicago

Washington

Atlanta 6.16%1/NCREIF index includes both current income and capital appreciation returns.

Source: NCREIF, Delta Assocates; October 2012.



Nationally, sales prices are about even with 2011 prices, dipping slightly to $212 in the first eight months of this year, compared to $214 for all of 2011. Sales returned to peak levels in Houston faster than in other major markets in the country. Significantly improved market conditions, driven by one of the strongest local economies in the nation, continue to fuel investor interest in the Energy Capital of the World. Despite the dip in oil prices earlier this summer, the surge in hydraulic fracturing activities is giving local energy compa-nies the confidence and incentive to expand their workforces, which is translating into greater interest in Houston office assets.

The average office sales price through the third quarter of 2012 is $216/SF, compared to $214/SF during all of 2011. With the excep-tion of 2009 – the low point of the downturn – values in Houston have continued to rise and reached a new high in 2011, which could be surpassed in 2012. Values will likely continue growing in the pe-riod ahead, as market conditions continue to strengthen, rents rise, and competition increases for Houston’s assets.



Houston’s office investment sales market likely will continue to im-prove gradually through the remainder of 2012 and into 2013. At this point in the cycle, most U.S. markets have regained their foot-ing and investors are finding credit more easily available. However, uncertainty within the Federal government and the larger national economy is hampering potential growth. The Houston market has the capacity to outperform the national average in the period ahead, in terms of percentage increases in both pricing and volume, due to the strength of the energy industry, its largest core sector.

The average cap rate on a rolling three-month basis for core Hous-

covered a wide range this year depending on the location and char-acteristics of the properties being traded. YTD, the weighted aver-age cap rate in Houston is 7.2%. Trophy properties have recently traded at cap rates below 7%. We expect cap rates to edge down during the balance of 2012 as market fundamentals suggest increas-ing investor interest in Houston’s office assets.

Nationally, Houston office cap rates are higher than those in gateway markets such as San Francisco Bay and New York but are lower than those in Chicago and Los Angeles.

TOP BUYERS OF OFFICE BUILDINGS

Top investors in office assets nationally in the 12 months ending inSeptember 2012, according to Real Capital Analytics, include:



OFFICE INVESTMENT PROSPECTS

The Houston office market will continue to attract additional interest from investors so long as the energy industry continues its strong performance. Fundamentals have improved in 2012, leading to healthy volume and sales prices, though concern regarding the na-tional economy has held both metrics in line with 2011 performance. The rising global demand for energy is likely to keep investor in-terest trained on Houston. Houston office assets remain a bargain compared to gateway markets, potentially allowing for further price appreciation in 2013.

INDUSTRIAL INVESTMENT SALES

Despite decelerating some from 2011 numbers, national industrial

through 2010. At the current pace, sales will total $29.3 billion in

Additionally, the Houston market has seen strong returns over the past year and is poised to see an increase in demand with the com-pletion of the Panama Canal expansion, allowing for a larger amount of cargo from the Pacific.

The Houston industrial market achieved total sales volume of $550 million through the first eight months of 2012. Houston’s volume has yet to catch up with the market’s strong performance.

Returns on industrial investments have shown continued strength in 2012. Like the office market, the Houston industrial market has per-formed well relative to other markets across the country. Returns in Houston measured 14.50% over the 12 months ending in June 2012, compared to the national average of 12.22%. Among major industrial markets, only San Francisco performed better during this time period.Recorded Houston industrial sales volume, at $550 million through August, is on pace to exceed the 2011 total of $737 million. The aver-



Cap rates for recorded sales of Houston industrial product in 2012

large spread between Class A and Class B product.

INDUSTRIAL INVESTMENT PROSPECTS

Demand for industrial properties in Houston will strengthen with the abundance of capital (core and value-add funds) that is chas-ing industrial product based on the strength of the market and the Houston economy. This abundance of capital coupled with the lack of quality product on the market will continue to put downward pres-sure on cap rates, particularly in the core industrial sector. Cap rates for industrial product in Houston are at historically low levels as a result of the liquidity in the capital markets, allocations, low debt rates, and long-term growth prospects for Houston. We anticipate that the ex-pansion of the Panama Canal and its attendant benefits for the Hous-ton industrial market will increase sales volume and pricing in 2013.

NCREIF RETURN INDEX1/

Industrial Properties

Metro Area12-Month Total Return at Mid-Year 2012

San Francisco 19.15%

Houston 14.50%

Atlanta

Dallas 13.41%

National Average 12.22%

Los Angeles 12.07%

Chicago

Washington* 11.11%

Denver 10.53%

New York 9.65%

Boston 4.52%1/ NCREIF index includes both current income and capital appreciation returns.*Baltimore, MD.Source: NCREIF, Delta Associates; October 2012



SECTION SEVEN

HOUSTON METRO MULTIFAMILY MARKET

THE



MULTIFAMILY: ROBUST PERFORMANCE

The Houston metro multifamily market continues to expand due to large population increases and one of the highest job growth rates in the country. This year has seen market fundamentals strengthen, with absorption and rents up and vacancy down. The Houston

terms of total market size (New York is not included in the accompa-nying graph to conserve scale).

NET ABSORPTION LEADS THE NATION

Net absorption for all classes of apartments remained strong in the Houston metro over the 12 months ending June 2012, surpass-ing the pace of absorption in 2011. Absorption was approximately 17,275 units over the 12 months ending in June 2012, compared to 15,591 units during 2011. The current absorption numbers are the highest in Houston since 2005, when an influx of New Orleans residents came to Houston following Hurricane Katrina. Houston’s population is increasing as the availability of employment attracts new residents from other parts of the country.

Across the U.S., apartments have proved to be a bright spot in com-mercial real estate in 2012. Most major metro areas have seen year-over-year increases in net absorption and financing has opened up for many new projects in the pipeline. Houston is leading this trend, with a higher net absorption of units than any other U.S. metro area for the 12 months ending June 2012.



VACANCY: STILL DECLINING

The construction of new apartment units has not kept pace with de-mand in the past year, leading to a decrease in the number of vacan-cies in the area. Vacancy as of June 2012 stood at 7.4%, down from

rate for all classes of Houston metro apartments has continued to decline following its spike in 2009 and is now at the lowest level since 2007. With strong job creation and population growth expect-ed to continue, we anticipate the vacancy will edge down further over the next 12 months.

RENTS: RISING

Strong demand and declining vacancy have allowed property own-ers to push rents to record levels in 2012. The average rental rate for

up 5.1% over the past 12 months. Rents will likely increase modestly through the balance of 2012 and into 2013 as job creation continues and economic growth strengthens.

HOUSTON METRO MULTIFAMILY MARKET OUTLOOK

The Houston metro multifamily market likely will continue the steady growth it has experienced during the last three years, as the regional economy adds jobs. Houston’s local economic strength has benefited the apartment market, with job seekers attracted to Houston and taking rental units off the market. Rents will build on the gains already seen for the remainder of 2012 and into 2013. Improvement in the single-family housing market could temper apartment absorption in the years ahead, especially with interest rates likely to remain low, but job growth should be able to sustain continued improvement in the Houston multifamily sector.



SECTION EIGHT

HOUSTON METRO RETAIL MARKET

THE



RETAIL SECTOR EXPANDING Metro Houston’s retail market experienced steady improvement in 2012, as the economy strengthened and job growth remained strong locally. This sector’s growth is supported by one of the na-tion’s best regional economies and its solid employment gains, rein-forced by hiring in the core industries.

RETAIL INVENTORY: MODEST EXPANSION

of retail inventory. Approximately two-thirds of Houston’s retail in-ventory consists of neighborhood and community center product types, including power, lifestyle, outlet, and theme/festival centers.

RETAIL EMPLOYMENT RISING

The Retail sector in metro Houston added 11,100 jobs over the 12-month period ending August 2012 in metro Houston, a 4.1% gain and a firm indicator of strength in this sector. On a trailing 12-month basis, retail employment in the Houston metro area increased for the 23rd consecutive month. Retail employment likely will continue to increase as consumer spending increases in 2013.

RETAIL VACANCY CONTINUES DOWNWARD TREND

Houston’s retail vacancy rate, at 11.2% in the 2nd quarter of 2012, is down from 12.4% in the 2nd quarter of 2011. We expect that va-cancy will remain steady or decline modestly for the remainder of 2012, as Houston’s consumer sector remains strong and retailers open more stores.



RETAIL RENTS PLATEAUING

same as in the quarter prior. Rents declined over the past year but likely will experience modest growth during the balance of 2012 and into 2013, as consumer spending gradually accelerates and market conditions continue to strengthen. The recent trends in vacancy have set the stage for rent growth.

RETAIL SPENDING CONTINUES RECOVERY

Data from the Texas Comptroller’s Office show that retail sales in the Houston metro area rose to $100.4 billion in 2011, up 11.2% from 2010. Annualized information based on 1st quarter 2012 data, the most recent available, projects retail sales in 2012 of $109.7 billion, a 9.3% increase over 2011 sales.

This increase is due in part to Houston’s growing population and employment base, but also its robust economic performance.

$109.7

RETAIL MARKET LIKELY TO GAINFURTHER MOMENTUM

The Houston retail market will likely undergo a sustained expansion during the remainder of 2012 and into 2013, as local job growth continues to remain strong and the consumer sector strengthens. As the regional economy grows, consumers will spend more, and a growth cycle in the retail market will likely occur over the next sev-eral years, making investment very attractive.

We expect the Houston retail market to outperform most other met-ro markets in the country, as the Houston metro area is a national leader in job creation and population growth. New jobs, in concert with an expanding population, will drive retail spending in the pe-riod ahead.



TRANSWESTERN HOUSTON1900 West Loop South, Suite 1300Houston, Texas 77027

www.transwestern.net/houston

For more information, please contact:Chip ClarkePresident | Gulf Coast & Mountain Regions713.270.7700

DELTA ASSOCIATES500 Montgomery Street, Suite 600Alexandria, Virginia 22314

www.DeltaAssociates.com

Atlanta 3340 Peachtree Road Suite 1000 Atlanta, Georgia 30326

Austin 901 MoPac Expressway South Bldg. 4 Suite 250

Baltimore

Suite 310 Columbia, Maryland 21045

Bethesda 6700 Rockledge Drive Suite 400-A

PHONE: 301.571.0900 FAX: 301.571.0903

Chicago 200 West Madison St. Suite 3300 Chicago, Illinois 60606

Dallas 5001 Spring Valley Road Suite 400W Dallas, Texas 75244 PHONE: 972.774.2500 FAX: 972.991.4247

Denver 4643 S. Ulster Street Suite 300

PHONE: 303.639.3000 FAX: 303.407.1453

Detroit 32255 Northwestern Highway Suite 206

Fort Lauderdale 110 Tower 110 Southeast 6th Street Fort Lauderdale, Florida 33301 PHONE: 954.761.2311

Fort Worth 100 Throckmorton Street Suite 700 Fort Worth, Texas 76102

Greenwich 1 Fawcett Place 4th Floor

PHONE: 203.637.9300

Houston 1900 West Loop South Suite 1300 Houston, Texas 77027 PHONE: 713.270.7700

Los Angeles 601 South Figueroa Street Suite 2750 Los Angeles, California 90017 PHONE: 213.624.5700 FAX: 213.624.9203

MENA Olayya-Thahliya Street Intersection Centria Mall Office Tower Suite 403 Riyadh, Saudi Arabia 11423

Miami 201 South Biscayne Boulevard Suite 1210 Miami, Florida 33131

Milwaukee 234 W. Florida Street Suite 310 Milwaukee, Wisconsin 53204 PHONE: 414.937.5030

Minneapolis 706 Second Avenue South 100 Baker Building Minneapolis, Minnesota 55402 PHONE: 612.343.4200 FAX: 612.343.4201

New Jersey 300 Kimball Drive 1st Floor Parsippany, New Jersey 07054 PHONE: 973.947.9200 FAX: 973.947.9199

New Orleans 935 Gravier Street Suite 600 New Orleans, Louisiana 70112

New York 400 Park Avenue 16th Floor New York, New York 10022 PHONE: 212.537.0370

Northern Virginia

Oklahoma City 235 North MacArthur Suite 500 Oklahoma City, Oklahoma 73127

Orange County 2211 Michelson Drive Suite 650 Irvine, California 92612 PHONE: 949.751.5700 FAX: 949.751.5701

Orlando

Suite 2324

PHONE: 407.253.3140 FAX: 407.253.3150

Phoenix 2415 E. Camelback Road Suite 900

PHONE: 602.956.5000 FAX: 602.956.5333

Salt Lake City

Suite 160

San Antonio

PHONE: 210.341.1344 FAX: 210.377.2797

San Diego 5935 Cornerstone Court West Suite 200 San Diego, California 92121

San Francisco Four Embarcadero Center Suite 1400 San Francisco, California 94111

Seattle 1420 Fifth Avenue Suite 2204

PHONE: 206.737.4300 FAX: 206.737.4301

Silicon Valley 2033 Gateway Place Suite 500 San Jose, California 95110

St. Louis 1001 Highlands Plaza Drive West Suite 150 St. Louis, Missouri 63110 PHONE: 314.621.1414

Walnut Creek 500 Ygnacio Valley Road Suite 100 Walnut Creek, California 94596 PHONE: 925.357.2000 FAX: 925.357.2001

Washington, D.C. 1700 K Street, NW Suite 660 Washington, DC 20006 PHONE: 202.775.7000 FAX: 202.775.7009

A Collaborative Publication of Delta Associates, Partners in Excellence with Transwestern © 2012. All Rights Reserved. You may Neither copy nor disseminate this report. If quoted, proper attribution is required. To order your copy of TrendLines, contact the Publications Administrator at 713.270.3312.



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